Irvine Housing Blog

Today we are gradually returning to a free market

I don’t see any evidence that supports this conclusion.  There is some chirping about putting these bloodsuckers out of business at some point in the future but I see nothing that suggests that the Government has any intention of extricating itself from housing.

The camel is not just going to leave the tent.  There is way too much money to be made by those who carry the most political influence.  Too Big To Fail is still official Government policy - that is all you need to know in order to realize that a free market in housing is a pipe dream in this life.

No, what we are going to see is a “transition” to some new scheme that the bankers come up with to “help” people get taxpayer guaranteed lines of credit.  Likely, it is going to have a free-market sleight-of-hand to it but we all know whatever they come up with will carry another “implicit” guarantee from the Federal Government only the next time “things will be different”.

Total mortgage equity withdrawal is $297,660. Not bad for a $400 investment
ROI = over 700x with no liability, but they might not be off the hook for the seconds.

Without skin in the game from the loan originators, packagers and personal liability, the game will be renamed, repackaged, respun and started again once the dust settles.  Now it FHA loans at 3.5% down with govt holding all the liability or should I say taxpayers.  The banks are still getting their origination fee, servicing fee, and foreclourse fee from the transactions.  Not bad with no skin in the game. 

Lower house price will hurt in the short run, but will be healthy for Main Street. 

Any comments about the latest Zillion report on 128 out of 130 housing markets having steep Y2Y declines?

I’m fearful of the default rates on the tsunami of FHA loans made since 2007, but at least those loans had real PMI backstops unlike the zero-down, liar loans.  Recall too that people have to pay some PMI upfront when doing an FHA loan.  So from the taxpayers’ POV, there is at least some upfront cost recovery.

Most of these loans will hold up (unless job losses worsen which is a possibility), since many of these FHA borrowers were the more responsible types.  But clearly the risk has moved from irresponsible private lenders to slightly more responsible GSE/taxpayer programs.

At least the size of that risk has been reduced (the price declines mean that many of the loans are at lower levels than the outrageous 05-07 days) including the absence of any housing ATM outrages.

Really, the pols and the Fed/Treasury had no choice but to go this route.  If you were in there shoes, you would have done much the same.  Mass economic calamity serves no one.  Which is why a guy like Bill McBride at CR, whose anger is evident, takes such a moderate tone.  The time to fix this problem was to avoid it altogether.  Humpty-Dumpty can’t be put back together again and all we can do is try and make an egg-shell littered omelette out of what remains so it does not go completely to waste.

“Total mortgage equity withdrawal is $297,660. Not bad for a $400 investment
ROI = over 700x with no liability, but they might not be off the hook for the seconds.”

Actually, I’m still hopeful that isn’t true.  The refi’s are recourse, and I still hope that the banks are selling them to debt collectors.

The only way that this whole tragedy doesn’t repeat itself in the next 10 years is if there is a whole class of people who are harassed for their lifetimes to make good on their bad debts.  Then the lesson will endure in society for 50 years, maybe…

There were 2 segments about real estate in the local Bay Area news.

1) Interview with a female realtor. When asked about declining home prices, she blamed “fickle buyers.”

2) Another segment on rentals said San Jose and SF are red-hot again like 2000, and rent now before you’re priced out forever.